Growth and employment effects of fiscal regimes

This paper presents an endogenous growth model with firms exhibiting extern al or internal increasing returns. Firms are either perfectly or monopolist ically competitive. The paper extends fiscal policy results, to cases where innovations are intentionally generated by firms. To provide quantitative information, the model is calibrated to replicate EU7 aggregate data. The t heoretical results indicate that distortionary taxes have strong negative e ffects on growth and employment and they tend to increase with the degree o f private returns. However, the quantitative results turn out to be fairly robust with respect to alternative assumptions on the degree of internal in creasing returns made in the process of calibrating the model.